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Bank of England to prop up banks amid 'Brexit' fears

The Bank of England is to offer extra liquidity to U.K. banks in the weeks running up to the referendum on Britain's membership of the European Union in an effort to pre-empt any shocks to financial markets around the time of the vote.

The U.K.'s central bank said it would offer three "additional Indexed Long-Term Repo operations" (ILTR) or a market wide auction of central bank reserves in the weeks around the EU referendum.

Mark Carney
Simon Dawson | Bloomberg | Getty Images
Mark Carney

This means the BoE will offer to exchange less liquid bank assets for cash, without limitation, allowing banks a cash buffer for six months at cheaper rates.

The Bank already offers ILTR operations to banks and building societies every month, but the extra auctions means lenders will have access to billions of pounds of extra liquidity, with four auctions now taking place around the vote in June.

"The Bank will continue to monitor market conditions carefully and keep its operations under review," the central bank said in a statement issues late Monday.

The BoE offered billions of pounds in extra, emergency financial support for banks around the time of the financial crisis as funding dried up and the central bank was forced to step in as a lender of last resort.

BoE Governor, Mark Carney addressed U.K. Members of Parliament (MPs) on Tuesday morning, after writing a letter to the government on the impact of the U.K.'s EU membership.

Carney confirmed that the central bank would not make any attempt to sway voters on their decision to remain inside or outside of the European monetary union.

"We will not be making any recommendation, and nothing we say should be interpreted as a recommendation, with respect to that decision," Carney said before the Treasury Committee.

"We do think there are risks from remaining in the European Union and risks in particular from the development of the Euro area," he said, but added the risk is an issue in terms of "market functioning" rather than "imperiling market stability".

Speaking on the possible impact a Brexit could have on U.K. jobs and wages, Carney said the BoE were not forming a view, as it was outside of the Bank's remit.

But he warned that some banks could relocate away from London in the case of a vote to leave the union.

"Certain firms would take a view in terms of relocation. We would expect some activity to move. There would be a logic to that," he added.